Tax Cuts?

  • Germantown is committed to long term financial stability with five year financial plans not one year budgets.
  • This planning method provides stability in the tax rate for those on fixed incomes, demonstrates ability to service debt to financial markets and allows flexibility in changing economic conditions.
  • At the June 11, 2018 BMA meeting, Alderman Massey made a motion to reduce the property tax rate by $0.11 without collaboration with city staff and no fiscal analysis to support his position. (motion failed 2-3, Massey & Barzizza voting yes)
  • Estimated impact of this cut is $1.8-$1.9 million to the city budget, and there was no recommendation on how to meet those cuts.
  • Disregarding a long-term plan would likely require annual tax increases and also reduce the stability of our finances. Essentially forcing the city to live “paycheck to paycheck.”

Municipal finances are complicated. As I discussed in the piece on school funding, the city is funded by multiple sources. The majority of that funding comes from property tax. In 2017, the Germantown tax rate was $1.97. Now how your bill is calculated is a little more complicated. The county assesses the value of your property and then you pay tax on 25% of that value. So, a $250k house at 25% is $62,500 of assessed value. You then divide that by 100 (the rate is per $100 of value) and multiply by $1.97 for a tax bill of $1,231. For a comparison, commercial properties pay 40% of the value of their property.

Near the end of the June 11, 2018 BMA meeting, Alderman Massey began questioning the City Administrator and Chairman of the FAC about how they came up with the tax rate. This meeting was the second reading of the budget, certainly a proper time to ask questions but probably not the best time to make fundamental changes to the budget that will be in place on July 1 or just 20 days from the meeting. The budget process has been ongoing for months. He has been at some of these meetings. He knows the work the City and FAC are doing to pull a budget together and it appears to have never approached the FAC or city staff with his proposal. What proposal? Alderman Massey made a motion to reduce the property tax rate by $0.11.

Link to YouTube Video of Massey’s remarks

Rightfully, he was questioned about his support for this cut. This is a 5.6% cut to the city’s primary source of funding. Do you have a budget in your household? I hope so. In essence, what Alderman Massey is proposing is to make the city live pay check to pay check. That would likely require annual tax increases and also reduce the stability of our finances. The city budgets for stability. The city administrator clearly states “we don’t do one year budgets we do a five year plan.” Admittedly, I don’t know all of their process but from the City Administrator’s presentation they clearly budget five year capital plans and do high level expense projections to at least that term. The debt projections presented went out to 2048. I can tell you that in corporate finance we look out 5-10 years and sometimes longer.

The city’s commitment to long term financial stability helps on many fronts. The idea is that our tax rates are stable for 5-6 years at a time and some times longer. That stability allowed the city to make it through the great recession without a tax increase. This happens by being able to build up reserves and then draw down on them as time goes on. It works much like your escrow account for taxes and insurance on a house.

The stability this method offers allows people on fixed incomes to budget accordingly and shows the financial markets we are a responsible community and have the ability to service our debts. These funding levels help to dictate the rates we are charged when we borrow money. It also gives the city flexibility to adjust to changing economic conditions as they did in 2008. These are all the reasons Germantown wins awards for their budget processes.

So what support and analysis did Alderman Massey bring for his proposed cut? None, merely a statement that “the ratios, I think, bear out that this will not change our ability to maintain the funding.” Budgets are not built on ratios, they are the product of observations and trends. As I said before, this process has been going on for months. A team of financial professionals from both the City and Financial Advisory Commission (FAC) have worked and reviewed the budget to get to this point. It clearly appears he has not asked anyone on staff to look at this and he has no analysis to support his claims. Alderman Massey has asked for transparency in government and transparency would be evaluating this proposed reduction thoroughly prior to voting on it. I am very concerned that there was no supporting documentation for this proposed cut and two Aldermen (Massey & Barzizza) voted for this not knowing the potential impact.

This is the City of Germantown’s budget ladies and gentlemen. The budget as presented projects property taxes of $32.8 million of property tax revenue. That implies that at the proposed rate of $1.95 (after a $0.02 reduction from 2017 for assessor adjustments) each penny of the tax rate generates $168,000 of revenue for the city. The proposed tax cut would result in a reduction of approximately $1,850,256. The city is required to have a balanced budget. I would like to see where the proposed cuts would come from to meet this type of reduction. Do they come from our ISO Class 1 Fire Department, award winning police department or any of the other great services offered by our city?

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